Investing in lower health costs [Editorial]

Maryland's health care system faces its greatest transformation in a generation — not because of the state's troubled health insurance exchange or even directly because of the Affordable Care Act but because of a change in the state's decades-old system for compensating hospitals. Under the terms of Maryland's newly updated waiver to Medicare rules, hospitals will make profits by keeping people well and out of their wards rather than by admitting them and treating them when they get sick.

It's a model that has never been tried on this scale before, and if it works, it could point the way for the rest of the nation. But the stakes are high for all involved: Unless the state can meet aggressive goals for reining in the growth in health care costs and saving Medicare hundreds of millions during the next five years, the state will lose its waiver, and Maryland's hospitals will see nearly $2 billion a year in Medicare reimbursements evaporate.

But now, amid pressure from hospitals and other interest groups, the General Assembly is debating changes to a key mechanism Gov. Martin O'Malley's administration has proposed to help make that possible, and unless lawmakers get it right, they risk making an already difficult task that much harder.

Mr. O'Malley included language in his budget this year that called for $30 million to go toward fostering "community partnerships" between the hospitals and skilled nursing facilities, palliative care providers, physicians and physician groups, community health agencies and other entities to "develop methodologies to improve the health and well-being of the community." The reason that was important was because in order to be successful under the new waiver, hospitals will need to find new, lower-cost methods of delivering health care, and some of the most obvious opportunities lie in delivering more care in community settings through clinics, rehabilitation centers, home visits and the like. The $30 million was intended to help hospitals design the partnerships and to pay for things like information technology coordination to facilitate them.

The money wouldn't come from general tax dollars but from a reallocation of funds generated through hospital rates that had been going to the Maryland Health Insurance Program, an insurer of last resort that covered people who couldn't get private insurance. With the Affordable Care Act, MHIP is less necessary and is eventually expected to disappear entirely. What the governor proposed to do was to take some of the money that would have gone to MHIP and use it to lower hospital rates and to use the rest of it — $30 million — to fund community partnerships.

But an amendment under consideration in the Senate Budget and Taxation Committee would cut all the language about community partnerships and instead instruct the Health Services Cost Review Commission to provide the hospitals with an additional $30 million through the rate-setting process to cover costs associated with the new Medicare waiver.

The state's hospitals say they need the change to help give them a sufficient cushion to meet the first year's goals in the transition to the new waiver, primarily the requirement that per person total hospital spending grow by no more than 3.58 percent — far lower than has historically been the case, though not out of line with what has happened in the last few years. The hospitals are not proposing that they be given the money directly but rather that the HSCRC use the money to hold down rates and, thus, give the hospitals more wiggle room to meet the federal requirements. The hospitals and other groups have also objected to the list of the kinds of entities that could qualify as community partners, saying it may be too restrictive.

The desire to create a cushion for the hospitals to help them meet the first year's goals is understandable, but any delay in developing community partnerships threatens the viability of the entire exercise. Some hospitals are already invested — both fiscally and philosophically — in developing the kinds of partnerships that promote community wellness and, in turn, will help reduce the growth in hospital spending. But for others, entering into such arrangements represents a major cultural shift, and for that reason, it was important for the administration to require a specific investment in them this year.

As legislators debate this rather arcane bit of budgetary and health policy, they should consider this: The first year's goals under the new Medicare waiver may be difficult to achieve, but unless the hospitals start making immediate and fundamental changes to the way they operate, the goals in the second year — much less the third, fourth and fifth — will be impossible.

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